As banks introduce their new overdraft fees, customers who typically go into their overdraft are bound to notice that the rates they are being charged will change this month.
Although banks will be bringing in new fees for both arranged and unarranged overdrafts on different dates, they will all be changed by the end of April.
In response to the Financial Conduct Authority’s (FCA) ban on fixed overdraft fees, changes are being introduced in addition to its ruling that unarranged overdraft fees cannot be higher than those charged on arranged overdrafts. For some customers, it will increase the amount they are charged but for others it will mean they will be paying less when borrowing through their overdraft.
For some of those customers who will see an increase in the amount they are charged when borrowing through their overdraft, the changes could not have come at a worse time, with many households starting to struggle financially due to the Coronavirus pandemic. The impact of the pandemic on the economy will mean it is likely that more consumers will begin to depend on their overdrafts to see them through the next few months.
Some banks have made temporary changes to their overdrafts to help their customers who are impacted financially by the Coronavirus pandemic.
Barclays Bank, for example, announced that it is waiving interest on all authorised overdrafts up to £750 on personal current accounts from 01 May to 09 July 2020.
Lloyds, Halifax and Bank of Scotland have stated that they are automatically offering interest-free rates on overdraft borrowing of up to £500, which lasts for a three-month period and ends on the 6 July 2020.
HSBC has stated that its customers will be able to borrow up to £500 on their overdraft without paying interest – this was introduced on the 09 April 2020 and lasts for three months.
NatWest, Royal Bank of Scotland and Ulster Bank announced that they are holding their overdraft fees at the current rate for at least three months starting on 30 March 2020, which means customers of these banks will not be paying the new overdraft rates until 30 June 2020.
Santander announced that from the 6 April 2020 it is offering its customers a £500 interest-free buffer on arranged overdrafts for three months.
Nationwide has also stated that it will not charge overdraft interest from 20 April until 14 July 2020 for those financially impacted by Coronavirus. To have a fee-free overdraft interest holiday, customers must complete an online form.
Help with overdrafts will only be available on certain accounts and with this being a very fluid situation, charges are being reviewed as the crisis develops. Therefore, you should check with your own bank or building society what the current terms are in case they have been changed.
Commenting on the overdraft changes, Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “These are uncertain times and no doubt the banks are monitoring the situation very closely. It is becoming evident that some consumers may experience disruption to their household incomes in one form or another over the coming months.
“It is therefore really positive to see some of the biggest banks taking steps to give support and provide relief to many of their customers during these difficult days, and the hope that others may follow suit moving forwards.”
New overdraft rules from April 2020?
The FCA announced changes to how overdrafts are priced and offered to the public in June 2019. It immediately made banks and building societies ensure that any refused payment fees would correspond to the actual costs of refusing payments. The remaining changes came into force on 6 April 2020 and include:
- Unarranged overdrafts can no longer be priced higher than arranged overdrafts
- A ban on fixed daily or monthly overdraft fees
- A ban on fees to have an overdraft available
- The use of a simpleinterest rate (EAR) for overdrafts
- Mandatory use of annual percentage rates (APRs) for overdraft pricing on advertising
- More action to identify those who showsigns of financial distress and to implement strategies to reduce repeat overdraft usage.